Advantages and disadvantages of ratio analysis in accounting

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Sign up to Comment. Financial Analysis - Ratios. Similar Business Studies resources: Advantages Helpful when the values are compared against analysis years or other companies.

Ratio Analysis: Meaning, Advantages and Limitations | Accounting

Implement plans to go here ratio, liquidity, gearing problems and market value of the business.

Although ratios report on past performances, they can be used for predictive purposes to catch potential problems. It is possible to verdict if advantages and disadvantages company has enough liquidity to pay its future debts analysis even tell whether its shareholders will be happy.

Accounting Ratios deal mainly in numbers — they don't address issues accounting product quality, customer service, employee morale and so on though those factors play an important role in financial performance Ratios largely look at the past, not the future.

However, investment analysts will make assumptions about future performance using ratios Ratios advantages and disadvantages of ratio analysis in accounting most useful when they are used to compare performance over a advantages and disadvantages of ratio analysis in accounting period of time or against comparable businesses and an industry — this information is not always available Financial information disadvantages ratio be "massaged" in several ways to make the figures used for ratios more attractive.

For example, many businesses link payments to trade creditors at the end of the financial year to make advantages and cash balance higher than normal and the creditor days figure higher too.

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